Snap’s lockup expiration could pose bad news for the stock

After months of watching Snap’s volatile ride on the stock market from the sidelines, some insiders will be allowed to sell their shares Monday.

Known as the “lockup period,” employees and early investors of companies are generally restricted from selling their shares during the initial months following an IPO. The duration of this period varies and in Snap’s case, 150 days post-IPO was determined to be the appropriate timeframe for the first wave of shares, with a second wave coming later in August.

The Snapchat parent’s stock has been trading down, partly in anticipation of this expiration date. But just because insiders can sell their shares, it doesn’t mean they will.

One analyst, Scott Devitt at Stifel Nicholas, believes this has all been overblown. Earlier this month, in a research note, Devitt said that investors have been “overreacting” and he predicted that many of the insiders will be reluctant to sell their shares. He upgraded the stock to a “buy” rating, whereas Morgan Stanley downgraded it to “equal weight.”

Like many newly public companies, Snap has had a tough time convincing investors that it will make a good long-term bet. Some investors think this could be the next Facebook, whereas others fear it could mimic Twitter’s volatile ride.

While Snap has built a social media platform that has amassed 166 million daily active users, Instagram’s “stories” clone quickly surpassed it.

Snap closed Friday at $13.81. When Snap went public in early March, it was priced at $17.